While index funds are clearly a better alternative to the vast majority of stock-picking strategies and funds, they also decline and even crash right with the market...because they ARE the market!
In 2007-09, the S&P 500 lost 56% in 15 months and took 6 years to recover!
The ideal strategy would be one which could capture the market's gains in good years, but avoid the declines in the bad years. Actually, it's not that hard to do exactly that.
The biggest, most liquid index fund which tracks the S&P 500 Index is the ETF "SPY". It also pays dividends. The net cost of "insuring" the fund against any decline for 12 months would be approximately 4%. (Cost of insurance minus dividends)
So the moment he invests, the investor knows that the absolute most he can possibly lose is 4%, even if the market completely collapses.
But that's not the end of it.
Without investing any more money, the investor can execute a few simple option transactions during the year which will raise cash, thereby reducing or eliminating even that original 4% cost.
At the end of 12-months, the investor will have either captured most or all of any S&P 500 gains for the period, or lost little or nothing if the market declined or even crashed! Virtually no other stock-picking strategy...or index fund...promises that result!